Topic 9

A set of flashcards focused on strategic mechanisms for appropriating returns from innovation, including reputation, learning curves, and entry timing.

Appropriability

The degree to which a firm is able to capture rents from its innovation.

Legal protective mechanisms

Tools used for innovation protection including patents, designs, trademarks, copyrights, and trade secrets.

Strategic mechanisms

Non-legal barriers to imitation such as controlling key resources, reputation, scale economies, learning curves, and entry timing.

Controlling key resources

A mechanism that is most effective when resources are rare and rival goods, preventing them from being used by two companies simultaneously.

Human capital

A key resource involving the attraction of talented employees and provision of incentives, such as Google’s $20\%$ working time incentive.

SGL Carbon

The company acquired by BMW because carbon fiber is an important production input for e-cars chassis.

Reputation

The perceived ability of a firm to satisfy customers’ needs, which is particularly important when customers do not know the value of a new product.

Brand loyalty

The result of building a reputation that allows companies to attract customers more easily and keep them from shifting suppliers.

Norm-based IP

Principles used in communities like professional chefs to protect recipes through social expectations rather than legal patents.

Reciprocity (Chefs)

The expectation within the culinary community to acknowledge the source and reciprocate when recipes or techniques are shared.

Gift economy

A form of trading commercially valuable knowledge within a community where sharing is not just altruism but an expectation of future benefits.

Learning curve

A phenomenon where individual unit cost falls as manufacturing experience increases and cumulative quantity produced rises.

Proprietary learning

Learning that is difficult for competitors to copy, making the learning curve a more effective strategic mechanism.

Worker learning

The caveat where learning is embodied in an individual employee rather than the firm as a whole.

Industry learning

A situation where learning spills over to competitors or costs fall because suppliers learn, potentially reducing the firm's specific advantage.

Economies of scale

The reduction in unit costs that occurs as production volume increases within a current period of time.

Division of labor

A reason for scale economies often described as being limited by the extent of the market.

Abernathy & Utterback’s dominant design

A concept where once a design is established, firms with high unit costs are forced to exit the market because their pricing is not competitive.

First mover advantage

The benefit that accrues to a company from being the first to enter a market, potentially resulting in higher market share and profits.

Lead time

A strategic mechanism for first movers in products and processes, rated as highly effective by manufacturing firms.

Network externalities

A first-mover advantage where an initial lead is self-reinforcing through the creation of a dominant design.

Switching costs

The costs incurred by a customer when changing suppliers, which can be created by a first mover to retain adoption.

Late mover advantage

The ability to free-ride on a first mover's R&D investments and benefit from reduced technological and customer uncertainty.

Market pioneers failure rate

A study of $50$ product categories showed that these early entrants have a $47\%$ rate of failure.

Mean market share of pioneers

The average market share for first movers, which is approximately $10\%$ according to research.

Market share of early followers

A statistic showing that these entrants averaged almost $3 \times$ the market share of pioneers.

Enabling technologies

Mature technologies required for an innovation to be successful, such as long-lasting batteries for smartphones.

Increasing returns to adoption

A factor that makes allowing a competitor a head start very risky for a potential entrant.

Complementary assets

Upstream or downstream capabilities used to develop, produce, or distribute an innovation, such as distribution channels or marketing.

Generic complementary assets

Assets or capabilities that do not need to be modified to fit a specific innovation.

Specialized complementary assets

Assets that must be modified for an innovation, such as a specific marketing division created to promote a new product.

Teece (1986) Model

A framework identifying imitability and complementary assets as the two key factors in profiting from technological innovation.

Imitability

A factor in the Teece model describing how easily an innovation can be copied by others.

Labor turnover

A factor that negatively impacts strategic advantages based on the learning curve if knowledge is held by individual workers.

Demand variability

Fluctuations in units sold that affect strategic advantages based on economies of scale more than those based on learning curves.

Shikimic acid

A key production input associated with Roche and the production of Tamiflu (Oseltamivir).

Fauchart & Von Hippel (2008)

Researchers who studied the three central norms regarding recipes and individual reputation among chefs.

SixDegrees.com

An example of a first-mover social network site that was eventually followed and surpassed by other platforms.

MITS (Altair)

The first mover in the personal computer category, which was later overtaken by followers like Apple and IBM.

Mosaic

The first-mover web browser from NCSA that was eventually superseded by followers like Netscape and Microsoft.

Intel

A notable first mover in the microprocessor product category that remained a winner against followers like AMD.

Polaroid

A first mover in the instant camera market that successfully maintained its position against followers like Kodak.

Sabbaticals

A perk listed in the Forbes ranking for 'best companies to work for' that was notably 'no' for the top 3 companies.

Roche

The company cited in the context of controlling key resources for the drug Tamiflu.

Inimitable good

A product that only one firm can produce, allowing the firm to enter the market whenever it chooses.

Secrecy

A mechanism used to protect intellectual assets, rated as more effective for processes ($51\%$) than for products ($35\%$).

Complementary Assets in Sales and Service

A first-mover mechanism for products that is rated at $43\%$ effectiveness by U.S. manufacturing firms.

Will Mitchell study

A 30-year study of the medical diagnostic imaging industry regarding when incumbents enter new subfields.

Rents

The economic returns or profits that a firm seeks to capture from its innovation.

Non-discrimination policy

A perk included in the 'best companies to work for' ranking regarding sexual orientation, which was 'yes' for the top 10 companies.